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Inside Move: Deals cooking as French fry

Companies mull merger possibilities

NEW YORK — There’s a new deal in town — and it’s not the one for Vivendi Universal Entertainment.

Viacom looks to be prepping a far bigger asset grab as it contemplates taking over AOL Time Warner.

Besides being the mother of all media mergers (think $170 billion) a Viacom tender for AOL TW could make a lot of sense strategically and financially.

The current VUE dealmaking frenzy (which is fast turning into farce) has again sparked an appetite for media mergers. And while Viv U is painting itself into a corner over price and alienating would-be bidders by the day, smart money is turning an eye toward other potential deals.

Take Comcast. The cable titan has raised an army of consultants to review prospects for a VUE bid, though more intriguingly, the battle-charged goliath’s real target could be ailing animator Disney.

And in the ego-charged world of mergers and acquisitions, a Viacom bid for AOL TW is not only plausible but industrially sound.

Assuming non-core pieces like AOL would be sold off immediately, the amount of content parked under a common roof of Viacom-Time Warner would provide the kind of operating leverage that most media companies would die for.

Unlike VUE, which needs to be sold more or less intact, AOL TW could be safely re-assembled in several new hands. Spinoffs would also make the deal more readily financable.

Barry Diller, for one, could take AOL into his interactive kingdom, while Viacom could gain a bigger library, a publishing portfolio, a cable distribution platform, a news net and other cable nets.

Surely AOL TW shareholders would not balk at an offer of, say, $25 a share, valuing the company’s equity at around $108 billion — compared with around $75 billion today.

The big challenge to making a deal work would be containing the cost side and milking synergies, Viacom has proved adept at; after all, the conglom ultimately defied skeptics by successfully digesting and pruning CBS, Paramount and Blockbuster.

Viacom has the firepower to do the deal, provided shareholders don’t revolt. Its balance sheet is spotless, and its prodigious free cash flows (currently being dispensed to shareholders in the form of dividends) would make it easy to raise the billions necessary to finance a blockbuster deal.

Though regulators would get complaints, there are no explicit rules that would block such a deal.

Conventional wisdom is that there is yet more consolidation to come in a media industry obsessed with cost-cutting and operating leverage. The automobile industry may indeed be the model for what’s still in store for Hollywood.